Australian Mud Company Pty Ltd v Coretell Pty Ltd

Basic facts 2 The basic facts are these. 3 AMC is the owner of an innovation patent relating to core sampling. 4 On 14 November 2006 AMC's lawyers sent a letter addressed to the second respondent, Mincrest Holdings Pty Ltd, alleging infringement of AMC's patent by reason of the manufacture and sale of core sample orientation tools without AMC's authority or licence, and seeking various undertakings to cease and desist. Mincrest received this letter on 16 November 2006. Lawyers on behalf of Coretell responded by a letter dated 22 November 2006 noting that Mincrest held no interest in the core orientation tools, the relevant interest being that of Coretell alone. Coretell denied infringement, questioned the validity of AMC's patent, refused to give the undertakings sought, and reserved its rights under s 128 of the Patents Act 1990 (Cth) (the Patents Act) (which relates to damages for unjustified threats of patent infringement). AMC's lawyers wrote to Coretell's lawyers on 5 December 2006 questioning Mincrest's involvement and repeating the allegations of patent infringement. By a letter in response dated 14 December 2006 the lawyers for Coretell repeated that Mincrest, for which the lawyers also acted, held no interest in the core orientation tools, noted that advice from a patent attorney was being sought, raised specific issues about the validity of AMC's patent, and again declined to give any undertakings as sought. AMC's lawyers responded by letter dated 13 February 2007 repeating the allegations and again seeking the undertakings. 5 Section 128 of the Patents Act provides that: (1) Where a person, by means of circulars, advertisements or otherwise, threatens a person with infringement proceedings, or other similar proceedings, a person aggrieved may apply to a prescribed court, or to another court having jurisdiction to hear and determine the application, for: (a) a declaration that the threats are unjustifiable; and (b) an injunction against the continuance of the threats; and (c) the recovery of any damages sustained by the applicant as a result of the threats. (2) Subsection (1) applies whether or not the person who made the threats is entitled to, or interested in, the patent or a patent application. 6 On 2 July 2007 AMC commenced proceedings against the respondents claiming relief for infringement of the AMC patent. 7 On 29 October 2010 the primary judge held that the respondents had not infringed the AMC patent (Australian Mud Co Pty Ltd v Coretell Pty Ltd [2010] FCA 1169; (2010) 88 IPR 270). 8 On 22 December 2010, consequential on reasons for judgment in Australian Mud Co Pty Ltd v Coretell Pty Ltd (No 2) [2010] FCA 1451, the primary judge made orders including orders in these terms: 1. The threats made by the first applicant by letters from its solicitors dated 14 November 2006, 5 December 2006 and 13 February 2007 to the second respondent and the respondents' solicitors and threatening the bringing of infringement proceedings against the respondents for infringement of Australian Innovation Patent No 2006100113 are unjustifiable. … 9. There be an enquiry into the amount payable by the applicants to the respondents by way of damages in respect of the cross-claim for unjustified threats. 9 The hearing on damages took place before the primary judge on 8 to 12 December 2014. Judgment was reserved. 10 On 4 December 2015 another judge, McKerracher J, published reasons for judgment in which his Honour found that the respondents had infringed two other innovation patents of AMC (Australian Mud Company Pty Ltd v Coretell Pty Ltd (No 4) [2015] FCA 1372). By interlocutory application AMC sought leave to make further submissions before the primary judge about the relevance of various findings of McKerracher J. The primary judge heard the interlocutory application on 10 March 2016. Reasons for judgment in respect of Coretell's claim for damages were published on 19 August 2016 (Australian Mud Company Pty Ltd v Coretell Pty Ltd (No 7) [2016] FCA 991). These reasons are the subject of the present appeal.

The appeal grounds 11 While there are 19 grounds of appeal, the principal challenges to the reasoning of the primary judge may be reduced to two related propositions. First, the primary judge's assessment of damage was unconnected to the statutory limitation that recoverable damage is damage sustained "as a result of the threats". Second, and at least partly by reason of the first proposition, the primary judge did not make the findings necessary to conclude that Coretell had sustained any damage as a result of the threats (indeed, he made contrary findings), with the consequence that Coretell's application for damages ought to have been dismissed. 12 There are a number of subsidiary grounds of appeal but because we have decided that the principal challenges are well-founded, with the consequence that the appeal must be allowed, we do not propose to deal with those grounds. 13 In order to understand the principal challenges and why they are well-founded, it is necessary to identify the competing cases which were put before the primary judge insofar as relevant to the principal challenges.

The competing cases 14 Before the primary judge Coretell contended that as a result of the threats in the letters dated 14 November 2006, 5 December 2006 and 13 February 2007 it ceased to market and supply the core orientation tool alleged to involve infringement of AMC's patent, known as the Camteq tool. Underpinning this contention was the proposition that the Camteq tool was available for commercial marketing and supply when the first letter was received on 16 November 2006. According to Coretell, but for the threats, it would have obtained revenues from the commercial supply of the Camteq tool which could be calculated using its subsequent development and supply of another core orientation tool, known as the Procept tool, as a proxy for the situation but for the threats (that is, that the Camteq tool was available for commercial marketing and supply from November 2006). 15 Before the primary judge AMC contended that the Camteq tool was still being developed, tested and found wanting throughout the entire period between November 2006 and the commencement of proceedings on 2 July 2007. The Camteq tool was not a properly functioning product throughout this period and thus was not available for commercial marketing and supply. The problems in transforming the Camteq tool from prototypes for the purpose of on-site testing ultimately led Coretell to develop and market a different core orientation tool, known as the Procept tool, and to abandon further development of the Camteq tool. These circumstances existed irrespective of the threats. Accordingly, it could not be concluded that Coretell had sustained any damage as a result of the threats. Coretell's case thus failed on the fundamental requirement of causation which is central to the operation of s 128, the terms of which limit recoverable damage to that sustained as a result of the threats. 16 Three things should be said at this point. First, the primary judge was confronted with a number of other issues (such as whether Mincrest had effectively transferred its interests in the Camteq tool to Coretell) which he was required to consider. Second, and as is frequently the case, the process of appeal has itself enabled the issues to be articulated with a clarity that would not necessarily have been apparent in the midst of a lengthy hearing involving substantial challenges to the credit of the principal witness for Coretell, Mr Kleyn, and a wide range of factual issues in dispute. Third, and as a result, the task of the primary judge was by no means straightforward.

Primary judge's reasons 17 The primary judge identified s 128 as the relevant statutory provision at [3]. 18 After summarising the competing cases of the parties, which included issues additional to those identified above, the primary judge at [19] said this: In these circumstances, the following primary questions arise for determination: (1) Is Coretell a "person aggrieved" for the purposes of s 128(1) of the Patents Act? (2) Did Coretell hold a relevant interest in the Camteq tool at material times when the threat letters were received? (3) Was Coretell at material times operating a business? (4) Was the Camteq tool of merchantable quality at material times? (5) What damage has Coretell sustained in light of the Court's findings? 19 It will be apparent that questions (3), (4) and (5) relate to the principal challenges in this appeal. Issue (1) is not pressed as part of the appeal. Issue (2) is part of the appeal but is one of the subsidiary issues which we do not consider it necessary to address. 20 It will also be apparent that issues (3), (4) and (5) are not framed in terms of the task imposed by s 128 or, indeed, AMC's contentions before the primary judge that it was necessary to identify whether Coretell sustained any damage as a result of the threats. This is significant because it is apparent that the primary judge's reasons as a whole are structured by reference to these questions. Accordingly, his Honour deals with issue (1) at [652] to [667], issue (2) at [668] to [708], issue (3) at [709] to [744], issue (4) at [745] to [748] and issue (5) at [749] to [842]. 21 At [20] to [651] is a lengthy section of the reasons dealing with the topic of "Evidence". This section involves a recitation of certain agreed facts (at [21] and [22]) followed by a summary of the evidence of each witness who gave evidence. Throughout this section are some paragraphs which are framed as findings but, otherwise, these paragraphs recite parts (but not all) of the evidence as it was given. 22 One of the main points in issue between the parties in the appeal is AMC's contention that, when analysed, his Honour's findings in this lengthy section cannot be understood in isolation but must be read in the context of his subsequent conclusions, a number of which disclose significant qualifications to and exceptions from the more generally expressed findings which appear in this section. Nor, according to AMC, can the findings in this section be taken as an acceptance of all or even the most important parts of the evidence summarised because the evidence which is purported to be accepted, in important respects, is internally contradictory or contradicted by other evidence which the primary judge has also purported to accept. Either way, the findings do not support the ultimate basis upon which the primary judge assessed damage, which was that the Camteq tool was not ready for commercial exploitation as at November 2006 but would have been ready within six months but for the threats. This counter-factual hypothesis, said AMC, was not the case which Coretell, through its principal Mr Kleyn, put. It was a hypothesis analysed by Coretell's accountant, Mr Meredith, on instructions from Coretell, but lacked a foundation in the evidence of Coretell's principal Mr Kleyn and was not the subject of any process of reasoning by the primary judge which could have permitted his Honour to find that this hypothesis represented the counter-factual which was more likely than not on the balance of probabilities but for the threats. As such, his Honour omitted from his consideration the requirement that Coretell had to prove, on the balance of probabilities, that it sustained damage as a result of the threats.

Causation 23 Section 128 of the Patents Act permits "recovery of any damages sustained by the applicant as a result of the threats". The requirement of causation, expressed in terms of damage "as a result of" the threats is fundamental to the operation of the section. To the extent that Coretell suggested that damage was axiomatic if development of the Camteq tool was impeded in any way by the threats; it is wrong. Damage as a result of the threats must be proved on the balance of probabilities. 24 Tabet v Gett [2010] HCA 12; (2010) 240 CLR 537 is not authority to the contrary. The existence of mere "difference" (or, by analogy in this case, "impedance" of the development of the Camteq tool) is not sufficient to found a claim for damages in negligence. As Hayne and Bell JJ said at [66] the "difference" (in that case, personal injury to the plaintiff) is compensable in negligence only if it is: … demonstrated (in the sense that the tribunal of fact must be persuaded that it is more probable than not)… that a difference has been brought about and that the defendant's negligence was a cause of that difference. The comparison invoked by reference to "difference" is between the relevant state of affairs as they existed after the negligent act or omission, and the state of affairs that would have existed had the negligent act or omission not occurred. 25 The unusual aspect of a provision such as s 128 is that the relevant event which must cause the difference is not the negligence of a defendant but the making of the threats. Given that the threats with which the provision is concerned are threats of "infringement proceedings" the question which has previously arisen is whether damage has been sustained as a result of the threat of infringement proceedings or as a result of infringement proceedings themselves. The importance of this distinction, between the threat of infringement proceedings and the infringement proceedings themselves, has been considered in a number of cases, including Townsend Controls Pty Ltd v Gideon Gilead (1990) 21 IPR 520 at 525 and Avel Pty Ltd v Intercontinental Grain Exports Pty Ltd (1996) 65 FCR 154. In Avel the Full Court said at [161] that the primary judge in that matter: … was well aware of the need to ensure that any damages which were awarded were damages which flowed from the threats which were made and not from any extraneous cause. 26 The distinction between damage resulting from threats and from proceedings may be critical in a particular case. The distinction, however, is a manifestation of the statutory requirement in s 128(1)(c) of the Act that the "damages sustained" be "as a result of" the threats. Given that "[c]ausation in a legal context is always purposive" (Comcare v Martin [2016] HCA 43; (2016) 339 ALR 1 at [42], applying Travel Compensation Fund v Tambree (trading as R Tambree and Associates) [2005] HCA 69; (2005) 224 CLR 627 at [28] to [36] and [45] to [50]), the object of s 128(1) to confine recovery of damages sustained by the applicant to that which is a result of the threats (in contrast, for example, to the proceedings for infringement), must govern the statutory consideration of causation. The statutory causal link inherent in the phrase "as a result of" in s 128(1)(c) does not warrant any search for a "common sense approach" to causation, in substitution for the application of the statutory text in a manner best effecting the statutory purpose. Approaching causation otherwise would be neither useful nor normative. 27 Given these matters it necessarily follows that we disagree with the primary judge's statement at [804] of his reasons that the distinction between sales lost as a result of the threats and sales lost as a result of the proceedings is "semantical". The difference is not semantical. It is a distinction which the statute requires to be drawn because the only recoverable damage is damage sustained as a result of the threats. Damage sustained as a result of the proceedings is not compensable. This is not to say that there cannot be different types of damage. Nor is it to say that the one type of damage cannot have more than one cause. But it is to say that in every case where a threat of infringement proceedings is followed by the commencement of infringement proceedings that there will need to be a close focus on the question whether the causal relationship between the threats and the damage is made good. The fact that the primary judge turned to the issue at [804] of his reasons and dismissed the distinction as one of semantics is suggestive of error. Supportive of the suggestion of error is the fact that, immediately before [804], various paragraphs show his Honour making no distinction between the effect of the threats and the effect of the proceedings. For example, at [797] the primary judge said "[b]ut for the litigation he would have been well-placed to see the marketing of a bug-free tool". At [799] his Honour said "sales of the Procept tool might be regarded for the purpose of estimating the but-for sales that Coretell or Mincrest were effectively denied from achieving as a result of the threat letters, from about 1 June 2007". 28 It is true that in [804] itself the primary judge also said: In any event, as a matter of fact, in this case I consider that because of the threats, which were then followed by the proceedings, it is apparent that hirings did not proceed. I am satisfied that any loss of sales or hirings was due to the initial threats, and the intervening infringement proceedings, while they may have added some additional reason for a lack of business, did not break the causation chain. 29 Had the preceding analysis supported the expressed state of satisfaction then the primary judge's error in dismissing the distinction between damage as a result of the threats and as a result of the proceedings may have been immaterial. In the present case, however, the preceding analysis does not support the expressed state of satisfaction. To the contrary, the preceding analysis is irreconcilable with the expressed state of satisfaction. We explain why this is so below. Apart from this, there is another problem with this part of [804]. It is that, also as discussed below, the primary judge rejected Coretell's case that the Camteq tool was ready for sale or hire by November 2006. Contrary to Coretell's case, the primary judge concluded that the Camteq tool was not ready for commercial sale or hire and would not have been so ready until June 2007. The proceedings having commenced on 2 July 2007 it is not apparent what hypothesised sales or hire the primary judge could have had in mind in this part of [804].

General 30 While some parts of the reasons from [23] to [651] involve findings of fact it is apparent from the primary judge's statement at [23] that the "evidence of witnesses bearing on key factual issues is recounted in this section" supports AMC's contention that it is not the case that everything "recounted" is accepted by the primary judge. The reasons must be read on the understanding that the primary judge is doing precisely what he said, recounting the evidence and nothing more unless he says to the contrary.

Mr Kleyn's evidence 31 The primary judge recorded that Mr Kleyn, Coretell's principal, retained Mr Barker to develop a digital survey camera and core orientation tool in 2005 (at [40]). By late 2005 Mr Kleyn thought he had "a good, viable functioning product" which could be demonstrated to prospective customers (at [43]). By May 2006 Mr Kleyn said that he was confident that the "orientation tool was ready for commercialisation" (at [48]). He supplied two prototypes of the tool in June 2006 (at [50]). He supplied three additional tools to allow testing on two sites (at [52]), as well as another tool which was tested and returned with a flat battery (at [53]). He also arranged for the transfer of six tools to mining interests in the Philippines known as MTL Philippines for which Mincrest received about $60,000 (at [56]). In the meantime Mr Kleyn said he was incorporating Coretell for transfer of the business from Mincrest to Coretell (at [48], [56] and [58]), with Coretell having commenced trading on 14 November 2006 (at [60]), which is the date on which the first threat letter was sent (and received by Mincrest two days later on 16 November 2006). 32 The primary judge recorded this: [64] Mr Kleyn said that in the period from the receipt of the initial letter from Mallon & Co, Coretell discontinued all further marketing and general supply of the Coretell orientation tool, with one exception, because of an existing commitment to an important customer - Silver City Drilling (NSW) Pty Ltd. [65] He said he told other customers that he could no longer supply them, including Barminco, and he told Mincrest employees to inform all customers who inquired about it, that Mincrest could not supply the tool until further notice. … [69] Mr Kleyn said that in around July 2007, he ceased the further hire of the orientation tools to Silver City and used the pretext that there was a problem with the batteries and the calibration of the tool, when in fact there were no such problems. He said he was worried about the threats of litigation by AMC. … [71] Mr Kleyn said, as Mr Barker was not involved in the marketing and did not have regular contact with the customers, he did not recall giving Mr Barker any particular direction in regards to whether to continue manufacturing the orientation tool in November 2006, but at that point, he was primarily working on the camera. [72] In about May 2007, Mr Kleyn said he told Mr Barker that he had withdrawn the orientation tool in late 2006 because of the threats and, in order to keep Mr Barker fully occupied in the event that the camera work was not sufficient, he requested him to continue manufacturing the components of the orientation tools and assemble the completed tools. He said he did this "because of the assurances I had given to Mr Barker that there would be sufficient work to continue to retain him. The second reason was that when the infringement proceedings ended, Coretell would have in stock sufficient working tools to supply the market". [73] Thus, Mr Barker continued to produce tools until about July 2007, when he ceased work on the orientation tools. At that point, Coretell had approximately 25 kits in stock, and in each kit there were two tools with a handset. [74] Mr Kleyn said that after the infringement proceedings were commenced in July 2007 by the applicants, he advised customers that Coretell was being sued by Imdex and, until the legal action was resolved, Coretell could not supply any orientation tools and it did not do so. Mr Kleyn stated that thereafter "[m]y business was dependent upon revenue received from the hire of cameras through Mincrest". 33 According to Mr Kleyn, after the infringement proceedings had been commenced on 2 July 2007, he decided to re-enter the market and contacted Mr Barker to do so. Mr Barker, however, was unwilling to assist given the proceedings (at [79]). As a result Mr Kleyn went elsewhere, to a company called Procept Pty Ltd, which insisted that it design a tool "afresh" (at [79] to [81]). By the time he reached an agreement with Procept and Procept had a prototype it was January 2009 at which time Mr Kleyn instructed his solicitor to inform AMC that he was going back into the market to sell the Procept tool (at [82] to [84]). 34 The primary judge recorded Mr Kleyn's evidence about various emails to Mr Barker in which, amongst other things, Mr Kleyn had said: (1) "As things are at present I am not confident we will have ori tools [orientation tools, referred to as the Camteq tool] or cameras available in January 07. It appears that progress in development of our products has lagged somewhat in recent months…" (on 20 December 2006). (2) "Renting is my problem but if the tools don't work how can I rent them" and, after referring to various tools including from Silver city that do not work, "I can't charge rent until you fix these problems" (on 22 December 2006). (3) "The manufacturing/production must be given priority at all times", in response to information from Mr Baker that preparing documents would delay the "camera/ori tool development and production" (on 8 March 2007). (4) "… we still have problems with the ori device we still can't charge any hire. If you give me something I can charge for ie camera with handset and or fix the ori problems I would be more receptive to sundry development costs" (on 30 July 2007). (5) "… leave the Ori tool for now and finish the camera. Will $5000.00 cover the cost of the Ori tool handset redesign, if so, when the camera is working, I will pay this before you start the Ori tool" (on 31 July 2007). 35 The primary judge recorded this evidence of Mr Kleyn in response: (1) Mr Kleyn was annoyed with Mr Barker because of an argument about fees and "Mr Kleyn was concerned about Mr Barker's absence in what Mr Kleyn saw as a critical period in the lull between the 2006 mining activities and the 2007 mining activities" (at [100]). (2) Mr Kleyn was concerned Mr Barker was not available for the work and there was a possibility that in his absence Mr Kleyn would not be able to sufficiently gear up for commercial hires (once the dispute with the applicants had been resolved). Accordingly, he was putting pressure on Mr Barker to return his attention to that work (at [104]). 36 The primary judge recounted Mr Kleyn's evidence in cross-examination to the effect that the Camteq tool was ready to go to market in May 2006 and ready for commercial release in November 2006 (at [132] to [139]). Despite conceding that there were a few problems with the Camteq tool (at [145]), Mr Kleyn insisted that they were fit for purpose (at [167]) and had been supplied to MTL Philippines. As the primary judge recounted at [171]: He [Mr Kleyn] insisted that "we had tools in the marketplace at that time. We had tools that we'd sent to MTL Philippines and we had tools getting ready for Silver City in late 2006, prior to this letter". 37 The primary judge also recorded at [175] that: When again challenged that there was no tool in May 2006, he [Mr Kleyn] insisted that there was. When challenged that there was certainly no business in 2006, he conceded that there were "no rentals as such". He added that there was a business in November 2006. 38 At [200] the primary judge noted that Mr Kleyn accepted that he did not give Mr Barker any directions to stop manufacturing the Camteq tool. 39 Mr Kleyn insisted that he had a commercially viable tool in July 2007 (at [203]) and rejected any suggestion that he went to Procept at that time because professional engineering expertise was required to develop a tool (at [205]). At [212] the primary judge recorded this: Mr Kleyn rejected the proposition that, even after the commencement of this proceeding, he was determined to commit to Coretell to continuing to try and bring the tool to market, saying: "The tool had been in the market. I withdrew the tool because of the threats". He denied that he wished to keep developing the earlier tool that Mr Barker had been working on. Again, he insisted that the tool had been out in the marketplace to Silver City. He insisted it was working very well.

The primary judge's findings about Mr Kleyn's evidence 40 After recounting the evidence of numerous other witnesses (including Mr Barker) the primary judge returned to Mr Kleyn's evidence at [615] here his Honour said this: Coretell says that its lay witnesses, Mr Kleyn, Mr Barker, Mr Maher and Mr Reynolds, gave their evidence honestly and credibly. It says that while Mr Kleyn became terse with the cross-examiner in the witness box, that should not detract from his integrity or his honesty and it is understandable that he found himself in an emotional position, having been engaged in seven years of litigation by the applicants. I will return to Mr Kleyn's evidence below when dealing with primary factual questions, but largely I accept these observations about his evidence made on behalf of Coretell. 41 Coretell would have it that this means that the primary judge must be taken to have accepted Mr Kleyn's evidence as summarised in the reasons. Given what follows in the judgment we do not consider that [615] can be read in this way. At most, it means that, at least at this point, the primary judge considered that Mr Kleyn was giving honest evidence to the best of his ability, eight years after the events, and in trying circumstances. This must be so because, as should be apparent from the discussion above, if there is one thing that was clear in Mr Kleyn's evidence it was his belief that the Camteq tool was ready for commercial exploitation before the first threat letter was received in November 2006. The primary judge, however, rejected this evidence. At [651] his Honour said: … taking into account the evidence concerning trialling of the tool in the field, canvassed above, Mr Barker's evidence and Mr Kleyn's evidence - all pointing to more work requiring to be done on the tool - I do not accept that the tool was, in fact, ready for market towards the end of 2006 when the first threat letter was received. 42 Having not accepted that proposition, it necessarily followed that the primary judge also (implicitly at least) rejected Mr Kleyn's evidence that Coretell, on receiving the first threat letter, "discontinued all further marketing and general supply of the Coretell orientation tool". In other words, in [651] the primary judge decided that Coretell's case theory could not be accepted. His Honour did not explore the consequences of this immediately in his reasons, moving instead to an issue which loomed large before him, whether Mincrest had effectively assigned its interests in the Camteq tool to Coretell (which is an issue we have treated as subsidiary in this appeal). 43 In dealing with the assignment issue, the primary judge made some observations which would be relevant to any consideration of the consequences for Coretell of his Honour's rejection of its case theory, based on Mr Kleyn's evidence that it had a commercially viable Camteq tool ready to supply by November 2006 and ceased the marketing and supply of that tool due to the threats. These observations included: (1) "It must be said that following the threat letters, or at least soon after the first of the threat letters, there can be little doubt that Coretell was quite active, as submitted by Coretell, in pursuing the business formally in its name" (at [687]). (2) "The evidence plainly indicates that certainly from the time of the threat letters onwards, Coretell traded in the Camteq tool in its developmental stages and ran a start-up business in respect of it" (at [705]). (3) "On the evidence in this Court, I am satisfied, on the balance of probabilities, that Coretell, at material times, held a material interest which it exploited alone in the Camteq tool, in its developmental stages, as part of a start-up business, when the threat letters were received" (at [706]). 44 The primary judge then returned to his assessment of Mr Kleyn's evidence. Having rejected the entire thrust of Mr Kleyn's evidence that he had a commercially viable tool ready for supply as at November 2006 when the first threat letter was received, his Honour said this at [743]: … having regard to the evidence of the witnesses called by the applicants concerning the performance of that tool in the field, which I have outlined and made findings about above, as well as Mr Kleyn's own evidence, especially his subsequent actions in calling Mr Barker off its production and later contracting for the design and production of the Procept tool, I am not satisfied the Camteq tool was in fact finally ready for the market as of the end of 2006 and soon after, and at the time the three threat letters were received, and this was recognised by Mr Kleyn. 45 This finding goes beyond that at [651] because the primary judge is concluding not only that the Camteq tool was not ready for commercial supply as at November 2006, but that Mr Kleyn knew it was not ready. How this might be reconciled with the more general finding at [615] about Mr Kleyn giving his evidence honestly may be a nice question but need not detain us. The point is that these findings are irreconcilable with any suggestion that the primary judge accepted Mr Kleyn's evidence as recounted at [24] to [226] at least insofar as that evidence had anything to do with the Camteq tool being ready for commercial supply (as opposed to trial and testing) as at November 2006 and Mr Kleyn having ceased such supply as a result of the first threat letter. 46 At [744] the primary judge said: That does not mean, however, that Coretell did not then have a "business" in the tool. Plainly, Mr Kleyn was working hard to perfect the tool and hire it out at material times. 47 Under the heading "Was the Camteq tool of merchantable quality at material times?", which was issue (4) in the primary judge's list of issues at [19], these paragraphs appear: [745] As just concluded, save for the evidence of Mr Barker, the preponderance of the evidence suggests the Camteq tool was nearing a state in which it would be ready for, but was not yet ready for, market when the threat letters were received. [746] I have found above that, while Mr Barker believed the tool he had designed and seen trialled was ready for market, the evidence of trialling in the field led by the applicants, and indeed Mr Kleyn's evidence overall, leads to a different conclusion. At the time of the threats, more work was required to bring the tool to a state in which it could be taken to market and hired out. [747] That is not to say, however, that Coretell was not then in the business of marketing the prototype tool at that time and did not sustain damage as a result of receiving the threat letters, as discussed below. [748] In my estimate, having regard to the time it took for the highly experienced and professionally capable Procept business and Mr Maher to design and produce the Procept tool with Mr Kleyn in 2009, and bearing in mind the lack of experience Mr Barker and Mr Kleyn had in developing such a tool by late 2006, and the problems they had experienced in perfecting it, and accepting that Mr Kleyn was a "driven" man who would have pressed hard to get the Camteq tool to market if he had not been impeded by the threat letters, as he later did with the Procept tool, I estimate the Camteq tool would have been ready for market about six months after the first threat letter, as of early June 2007. 48 As AMC submitted, there is a logical problem with these paragraphs. In short, the primary judge had found that the Camteq tool was not ready for commercial supply and that Mr Kleyn knew this as at November 2006, when he received the first threat letter. He had also found that Mr Kleyn was "working hard" to perfect the tool. This can only be a reference to the communications between Mr Kleyn and Mr Barker between December 2006 and July 2007 in which Mr Kleyn was trying to get Mr Barker to resolve the problems that were being experienced with the Camteq tool. Given this, it is not apparent how the Camteq tool could have been ready for market by June 2007 if Mr Kleyn had not been "impeded by the threat letters". The primary judge had not found any impedance by reason of the threat letters. Rather, he found that: "Mr Kleyn was working hard to perfect the tool and hire it out at material times" (at [744]); "Coretell was quite active, as submitted by Coretell, in pursuing the business formally in its name" (at 687]), it being remembered that Coretell was only incorporated on 25 May 2006; and "… certainly from the time of the threat letters onwards, Coretell traded in the Camteq tool in its developmental stages and ran a start-up business in respect of it" (at [705]). 49 These findings, of course, are consistent with AMC's case theory that the Camteq tool was still in its developmental phase as at November 2006 and that, contrary to his denials, Mr Kleyn had continued to press Mr Barker between December 2006 and July 2007 to work out the problems with the Camteq tool so he would have a product suitable for commercial supply, never managed to get the Camteq tool to that final stage, and lost the services of Mr Barker after the proceedings had commenced, necessitating the approach to Procept, which refused to continue the development of the Camteq tool and instead designed a new tool, known as the Procept tool. 50 It is also not apparent why, having rejected Mr Kleyn's evidence that he did have a Camteq tool ready for commercial supply as at November 2006 and having found that contrary to his evidence Mr Kleyn knew the Camteq tool was not ready for commercial supply as at November 2006, the primary judge (implicitly at least, if [748] is taken in isolation and at face value) accepted the proposition that Mr Kleyn would have continued to develop the Camteq tool to a state of commercial readiness but for the threat letters. This was not Mr Kleyn's evidence as summarised by the primary judge. There is no suggestion in the primary judge's summary of Mr Kleyn's evidence that but for the threat letters he would have continued to develop the Camteq tool and it would have been ready by June 2007. It was Mr Kleyn's evidence, rejected by the primary judge, that the Camteq tool was already ready for commercial supply as at the time of the first threat letter. 51 The source of the counter-factual that, but for the threat letters, Coretell would have finalised development of the Camteq tool by June 2007 is not disclosed in his Honour's reasons other than by a reference to the "preponderance of the evidence" (at [745]) and the primary judge's own "estimate" (at [748]). Apart from the primary judge having undertaken his own estimate, there are two potential sources in the evidence for this counter-factual. The first is that Mr Meredith, the accountant, was instructed by Coretell to this effect. When dealing with the question of quantification of damage the primary judge recorded this: [759] Mr Meredith added that in preparing GM2, he sought instructions about the merchantability of the Camteq tool and was instructed it was of merchantable quality as at 14 November 2006 (when the first threat letter was received) and July 2007 (when this proceeding was commenced). [760] Mr Meredith further stated that to address an alternative scenario where the Court determines that there were merchantable quality issues with the Camteq tool as at 14 November 2006, he was instructed to provide an alternative opinion on Coretell's losses assuming Coretell would have taken no longer than three or six months (from 14 November 2006) to develop an entirely substitute tool of merchantable quality. He then expressed his opinion on those alternative scenarios at [55] of GM2. He there provided alternative profit and loss calculations respectively of $2,265,337 and $1,772,775 (from about 1 June 2007). 52 Of course, an expert acting on instructions is one thing. Proof of the existence of an instructed fact, matter or circumstance is another. Mr Meredith's report could not function as evidence rationally supporting any inference that the Camteq tool, if not ready for commercial supply as at November 2006, would have been ready by June 2007 but for the threats. 53 Nor could Mr Kleyn's evidence rationally support that inference and, he being the principal of Coretell, it is his evidence that counts. Mr Kleyn's evidence could not rationally support that inference because his evidence was that the Camteq tool was already ready for commercial supply as at November 2006 and the threats made him stop marketing and supplying the Camteq tool. Mr Kleyn refused to countenance the notion that the Camteq tool was still being developed after November 2006. There is no suggestion in the primary judge's summary of Mr Kleyn's evidence that Mr Kleyn stopped developing the Camteq tool as a result of the threat letters. The activities said to have ceased because of the threats are marketing and supply, not development. See the reasons for judgment at [64], [65], [68], [69] and [72]. Mr Kleyn, moreover, did not recall telling Mr Barker to cease manufacturing the Camteq tool (at [71]) and wanted Mr Barker to keep manufacturing the tool so that once the infringement proceedings were over Coretell would have "sufficient working tools to supply the market" (at [72]). All of this accords with Mr Kleyn's evidence, recorded by the primary judge at [207] to [212], about the emails between December 2006 and July 2007 where, leaving aside Mr Kleyn's denial that what was occurring was development work, he was urging Mr Barker to keep working on the Camteq tool (even if it was put to one side temporarily so that the camera could be completed). 54 While some of this may appear inconsistent with parts of Mr Barker's evidence, this is not necessarily so. At [279] the primary judge recorded that: Mr Barker recalled that in around mid-November 2006, Mr Kleyn came into his office and told him that Imdex was claiming that their patent had been breached. He said Mr Kleyn said words to the effect that he had decided to cease hiring the orientation tool and focus primarily on the ProShot until he had taken legal advice. Mr Barker could not specifically recall, however, whether Coretell withdrew the tool from the sites where it was being used or hired at the time. He was not involved in that aspect of the business. He was told, however, to just focus on the camera for now. 55 This, no doubt, is the conversation Mr Kleyn could not recall having with Mr Barker at [71]. Even if Mr Barker's evidence was taken at its highest by the primary judge it does not suggest any impedance of the development of the Camteq tool. The communicated decision was not to cease developing the Camteq tool. It was that Mr Kleyn had decided to "cease hiring" the tool and wanted Mr Barker to focus on the camera until Mr Kleyn had taken legal advice. Whenever this conversation occurred, it is apparent from the emails between December 2006 and July 2007 that Mr Kleyn was pushing Mr Barker to finish the Camteq tool. 56 There is one piece of evidence to which the primary judge made no reference in reaching his conclusions about the counter-factual. In an affidavit of 31 October 2014 and in answer to evidence from Mr Ross, an accountant called by AMC, Mr Kleyn said this: a. If there had been accuracy errors with the tools (such as that a batch of accelerometers did not work or give orientation data), I believe this problem would have been identified in bench testing against the stands and apparatus set by reference to the other orientation tools in Mincrest's stock. I believe this would have taken approximately 1 - 2 hours of testing, 2 hours of research to determine an appropriate alternate supplier for those components, 2 days to have that supply shipped to Orange Grove (as accelerometers are widely available pre-made components, like the other components on the Barker and Procept Tool circuit-boards) and approximately 2 hours to update several tools which were experiencing the identified problem. I accordingly believe that a tool issue such as inaccuracy would have been resolved in 1 - 2 weeks had such problem occurred; and b. Moreover, if the tools were not rendering accurate orientation data by November 2006, I was aware that a number of electronics developers and manufacturers exist throughout Australia. As I had been working on the orientation tool for so long and invested substantial money, I would have briefed an alternate supplier immediately. Given my previous experience with Procept, I believe that it would have taken approximately three months for Procept or another supplier to develop a working core orientation tool. This was particularly so as I already had viable casings and battery housings ready for the circuit-board to be assembled into. 57 The primary judge did not refer to this evidence in his recounting of what his Honour described at [23] as the evidence "bearing on key factual issues". It assumes a state of affairs which the primary judge had rejected, namely that Coretell had a commercially viable tool but for a problem with the accuracy of the orientation data it provided. The primary judge rejected this proposition at [651] and [743]. It is also inconsistent with his Honour's subsequent description at [795], when dealing with certain assumptions the accountants made, that the Camteq tool had a "number of problems" which meant that it could not be commercially supplied. Moreover, it is contrary to what Mr Kleyn in fact did in circumstances where his Honour found that there was not a commercially viable tool as at November 2006. Despite being in a position worse than the very position he describes in this evidence (in that accuracy of orientation data was but one of the problems disclosed by the trials of the tool in the field), Mr Kleyn did not then immediately brief an alternative supplier. Even more tellingly, when he did deliver an alternative supplier, Procept, Procept insisted on designing a new tool from first principles rather than building off the work already carried out by Mr Barker. And to add to this, the arrangements with Procept and the completion of work by Procept took 11 months, from a meeting in February 2008 until April 2009 (see the reasons at [80] to [88]), to result in a working tool, the Procept tool, available for commercial supply. 58 Given this, if his Honour did have any regard to this evidence from Mr Kleyn the evidence could not provide a rational foundation for the conclusion that it would have taken 6 months for Coretell to finish development of the Camteq tool. Nor can any of the other evidence which Coretell sought to draw in aid provide such a rational foundation. 59 At [726] the primary judge accepted Coretell's evidence that it had supplied six tools to MTL Philippines. This may be accepted but the primary judge did not refer to that finding in the context of resolving the question when the Camteq tool might have been ready for commercial supply. His Honour made the finding, and referred to it, solely for the purpose of deciding that Coretell was in business when the threat letters were received, albeit (as the primary judge found) a nascent start-up business directed at developing a commercially viable tool, rather than a business of commercially supplying a viable tool. The primary judge's reasons do not attempt to resolve any potential inconsistency between the finding at [726] (that "Coretell's submissions concerning the fact of the order, payment and the fact of the delivery to MTL Philippines of the tool, should be accepted") and the finding at [743] (that "I am not satisfied the Camteq tool was in fact finally ready for the market as of the end of 2006 and soon after, and at the time the three threat letters were received, and this was recognised by Mr Kleyn") although, on their face, the findings are irreconcilable. Given the strength of his Honour's findings against the proposition that the Camteq tool was ready for commercial supply as at November 2006, the only apparent resolution of this inconsistency which is open is that, whatever its significance, the supply to MTL Philippines did not mean that the Camteq tool was a commercially viable proposition when it was supplied because it had not been finally developed as a functioning unit. This, it should be noted, is supported by some other evidence, also not referred to by the primary judge, in which Mr Kleyn told Mr Barker in the email of 20 December 2006 that the approximately $60,000 paid by MTL Philippines had to be preserved because it might have to be repaid in the context that, as Mr Kleyn there said, he was not confident there would be a working tool by January 2007. For these reasons, the supply to MTL Philippines could not provide a rational foundation for the inference that the tool would have been ready within 6 months but for the threats. 60 Coretell also referred to the dealings with Silver City to which the primary judge referred at [65] to [69]. This is not a matter to which the primary judge referred in reaching his conclusion that the Camteq tool would have been developed within six months of the first threat letter. Had the primary judge considered this matter relevant, it would have been necessary to resolve a number of other inconsistencies about this event. In particular, Mr Kleyn said that although he told Silver City the tool had technical problems this was not true (at [68]). His Honour, of course, found that the tool did have problems so it may be inferred he rejected this part of Mr Kleyn's evidence. Further, Mr Kleyn's email of 22 December 2006 referred to Silver City having returned tools which were not working. How an apparently failed trial of tools by Silver City supports the counter-factual in circumstances where Mr Kleyn was, as the primary judge found, "working hard to perfect the tool" (at [744]) and yet did not manage to perfect the tool at all, is not apparent. 61 Coretell referred to Mr Barker's evidence that he considered the problems with the tool were minor and resulted from operators doing "silly" things (at [317] and [343]). Coretell said the primary judge must be taken to have accepted this evidence as [651] discloses in which the primary judge said: Generally speaking I consider that Mr Barker gave honest and reliable evidence and was not at any great pains to colour his evidence. However, while from his point of view he confidently considered that he had produced a product that was ready for market - accepting there remained issues to be resolved - a serious question remains whether his perceptions mean the Court should arrive at this same conclusion on all the evidence. This question and the question whether his evidence should result in a finding that there were no merchantable quality issues with the Camteq tool at material times is considered further below. In the result, taking into account the evidence concerning trialling of the tool in the field, canvassed above, Mr Barker's evidence and Mr Kleyn's evidence - all pointing to more work requiring to be done on the tool - I do not accept that the tool was, in fact, ready for market towards the end of 2006 when the first threat letter was received. 62 Again, apart from the fact that the primary judge does not refer to the evidence of Mr Barker about the problems being only minor and silly as supporting his counter-factual, the finding at [651] is essentially a rejection of this part of Mr Barker's evidence in circumstances where it was Mr Barker who was responsible for developing the tool. That this is so is plain from [794] where the primary judge said: … I do not accept that the Camteq tool was ready for market or, put another way, of merchantable quality, as of the date of the threats. I have made findings above that discount Mr Barker's confidence in that regard. 63 As such, the rejected evidence of Mr Barker cannot provide a rational foundation for the counter-factual developed by his Honour. 64 Nor can the evidence that Mr Barker continued to make the tools after the threat letters, to which the primary judge referred at [334], assist Coretell. First, that fact speaks against any impedance by reason of the threats. Second, Mr Barker, whilst continuing to work on the tools, still did not resolve the problems within six months or indeed at all. 65 Coretell referred to the evidence of Mr Reynolds as support for the counter-factual. The primary judge made no such reference. Insofar as Mr Reynolds, who was involved in the marketing of the tool but had no involvement in its development, thought that the tool was ready for commercial supply in 2006 (see, for example, at [380]), it is apparent that his Honour must have rejected this evidence as well. Otherwise he could not have found that the tool was not commercially viable as at November 2006 and would not have rejected the contrary evidence of Mr Kleyn and Mr Barker. As with Mr Barker, the rejected evidence of Mr Reynolds cannot provide a rational foundation for the counter-factual developed by his Honour. 66 Coretell referred to the Procept tool once arrangements had been finalised, being developed relatively quickly. The relevance of this, however, depended on there being some meaningful similarity between both Mr Barker as a sole developer and Procept as a company of experienced engineers and between the Camteq and Procept tools. There is no finding as to the first matter. Nor, rationally, could there be. As the primary judge said at [418] Procept had "extensive commercial experience in product design and manufacture". The same could not be said of Mr Barker who was not an engineer and had no previous familiarity with orientation tools (at [233]). As to the second matter, the primary judge's conclusion of similarity at [796] is problematic in and of itself. At [796] the primary judge said: As to the third assumption, that the Camteq tool and the ORIshot tool were substantially the same, I accept that assumption. There is nothing in the evidence of Mr Maher to suggest any substantial differences and I do not consider the evidence given by Mr Brown to be such that a different view should be adopted. I find they were sufficiently similar in function and design for the Procept tool sales to be a proxy for a theoretical Camteq tool sales profile. 67 However, while Mr Maher said that he was going to compare the two tools and was qualified to do so, as the primary judge recorded at [429]: Mr Maher also acknowledged that while he suggested in his affidavit that he was going to deal with the similarities and differences between the two tools, he had not actually done that. 68 This being so, there could not be anything in the evidence of Mr Maher suggesting any difference. The absence of such evidence, far from supporting an inference of similarity, supported an inference against Coretell. It had called an expert, qualified to give an opinion, who said he was going to give an opinion, who did not give any opinion. The only inference this left open was that Mr Maher did not consider that he could conclude that the tools were similar. Mr Brown's evidence, to which the primary judge referred at [796], could not be expected to answer evidence that did not exist. Mr Brown had over 20 years' experience in mining and drilling (at [545]). He had noted a number of differences between the Camteq tool and the Procept tool (at [560] to [562]). What the primary judge meant in [796] when he said that Mr Brown's evidence did not lead to a different view from that of Mr Maher who did not "suggest any substantial differences" is unclear given that Mr Maher had not engaged with the task of comparison at all despite saying he was going to do so. In any event, it is sufficient to say that Mr Maher's evidence or non-evidence on the issue could not support the finding in [796] and Mr Brown's evidence was to the contrary of that finding. 69 In other words, it is not possible to identify how the primary judge concluded that the Camteq tool would have been ready for commercial supply within 6 months. That conclusion was "glaringly improbable" and "contrary to compelling inferences" (Robinson Helicopter Company Inc v McDermott [2016] HCA 22; (2016) 331 ALR 550 at [43]) having regard to the primary judge's own findings that: (1) Mr Kleyn was a driven man who was working hard to get the Camteq tool perfected (at [744] and [748]); and (2) Mr Barker had kept manufacturing the Camteq tools after the threat letters (at [334]). 70 It is also irreconcilable with Mr Kleyn's evidence that: (1) The threat letters made him stop marketing and hiring the Camteq tools, not developing the Camteq tools (see above). (2) He always wanted Mr Barker to keep manufacturing the tools so that Coretell would have sufficient stock on hand once the infringement proceedings were over (at [72]). 71 We are compelled to conclude that the reason the primary judge has made findings about a counter-factual which are "glaringly improbable" and "contrary to compelling inferences" is that the issues which his Honour posed for himself did not include the key question of causation. At [19] his Honour did not pose the question; what damage was sustained as a result of the threats? As noted, the structure of the judgment reflects the questions posed at [19]. Accordingly, nothing in the reasons discloses a focus on the critical concept of what would have occurred but for the threats. Instead, at [748] there is a conclusion that Mr Kleyn was "impeded by the threat letters", which is inconsistent with the balance of his Honour's findings. The conclusion cannot stand. 72 It is also apparent that the reasons for judgment segue from the question "Was the Camteq tool of merchantable quality at material times" to the question "What damage has Coretell sustained" without any analysis of the nature of any "impedance". As noted, it cannot have been impedance of the development of the Camteq tool because this is irreconcilable with the case that Coretell put. Yet this is the basis upon which the primary judge assessed damage, as explained at [795] to [799]. It necessarily follows that the conclusions about damage are themselves unsustainable.

Coretell's submissions 73 Coretell's submissions to the contrary of these conclusions cannot be accepted. The submissions do not confront the fundamental difficulty that the conclusion that the development of the Camteq tool was impeded by the threats is irreconcilable with not only the primary judge's other findings, but also Mr Kleyn's evidence and Coretell's entire case theory before the primary judge. 74 Otherwise, it is not the case that the relevant question was "assuming the threats had not been made, when would the Camteq Tool have been made available to the market?". This incorrectly assumes that the Camteq tool would have been made available to the market but for the threats. On the evidence, given that the development of the Camteq tool was not impeded by the threats, the relevant question was what effect, if any, did the threats have on the development of the Camteq tool? As discussed, the only answer to this question open on the evidence of Mr Kleyn and Mr Barker which was not rejected by the primary judge, was that the threats had no effect at all on the development of the Camteq tool. 75 In hypothesising what would have happened but for the threats, the Court is not entitled to engage in estimation, speculation and guesswork. This submission of Coretell conflates the question of causation, which must be determined as a question of fact on the balance of probabilities, and the quantification of damage in which, provided some damage is proved, it is well-established that the Court must do the best it can, even if elements of estimation, speculation and guesswork are involved. 76 For the reasons given above, contrary to Coretell's submissions, there was not ample support for the conclusion that the Camteq tool would have been ready for commercial supply within 6 months of the first threat letter. This is because there was no material in the evidence which his Honour accepted that was rationally capable of founding the conclusion that the threat letters had any effect on the development of the Camteq tool. There was no finding, and no evidence to support a finding that, development of the Camteq tool ceased after the threat letters. The evidence was only that marketing and hiring ceased, not development. Development, on Coretell's case, continued for a number of reasons including Mr Kleyn's drive to see the tool perfected and desire to have a sufficient stockpile for sale once the proceedings had been completed. 77 It is not the case that [804] reveals that the primary judge awarded damages only for the effect of the threats. To the contrary, as he had found the Camteq tool was not ready for commercial supply and would not have been ready until early June 2007, with the proceedings having commenced on 2 July 2007, it is not apparent how the threats could have prevented any sale or hire except, perhaps, between early June 2006 and 2 July 2007 (but that, of course, was never Coretell's case and nothing in the evidence focused on such a possibility). 78 This is not a case where the question was whether the proceedings broke the chain of causation. The primary judge found the Camteq tool was not ready and made other findings which did not permit the conclusion that the development of the Camteq tool (as opposed to its commercial supply) had ever ceased or been impeded as a result of the threats. As such, but for the threats, the only conclusion open is that what occurred would have occurred in any event. Mr Kleyn would have continued to press Mr Barker to develop the Camteq tool. Mr Barker would have refused because the proceeding remained on foot. Mr Kleyn would have gone to Procept. Procept would have refused to build on Mr Barker's work. Procept would have designed a new tool and Mr Kleyn would have caused that tool to go to market as he in fact did. Coretell lost nothing as a result of the threats. 79 Otherwise, Coretell's submissions have been dealt with above or involve the subsidiary issues in the appeal which we do not consider it necessary to address given that, by reason of our conclusions on the principal issues, the appeal must be allowed and Coretell's claim for damages must be dismissed. The only conclusion available on the evidence before the primary judge was that Coretell had not proved that it sustained any damage as a result of the threats. Any other conclusion would be contrary to compelling inferences on the evidence given the primary judge's unchallenged findings that the Camteq tool was not ready for commercial supply as at November 2006, that Mr Kleyn recognised this fact, and that Mr Barker's contrary evidence could not be accepted. I certify that the preceding seventy-nine (79) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood, Jagot and Burley.